Japan and Germany, Often Dismissed By US Economists, See Sustainable Growth and Less Unemployment
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The New York Times recently did a series on Japan that it describes as an examination of “the effects on Japanese society of two decades of economic stagnation and declining prices.” Reading the series is about as cheery a task as rubbernecking at a car wreck on I-95. But unfortunately the Times series simply repeats the “conventional wisdom” about Japan put out by the same economic experts who missed an $8 trillion housing bubble in the United States, and in fact have been wrong on most of the big economic issues over the past two decades.
In the midst of the Great Recession, the United States is suffering through nearly 10 percent unemployment and 50 million people without health insurance. A new report has found over 14 percent of Americans living below the poverty line, including 20 percent of children and 23 percent of seniors, the highest since President Lyndon Johnson’s War on Poverty. That is in addition to declining prospects for the middle class, and a general increase in economic insecurity.
How, then, should we regard a country that has 5 percent unemployment, health care for all its people, the lowest income inequality and is one of the world’s leading exporters? This country also scores high on life expectancy, low on infant mortality, is at the top in literacy, and is low on crime, incarceration, homicides, mental illness and drug abuse. It also has a low rate of carbon emissions, doing its part to reduce global warming. In all these categories, this particular country beats both the United States and China by a country mile.
Does that not sound like a country from which Americans might learn a thing or two about how to get out of the mud hole in which we are stuck?
Not if that place is Japan. During and before the current economic crisis, few countries have been vilified as an economic basket case as much as the Land of the Rising Sun. Google “Japan and its economy” and you will get numerous hits about Japan’s allegedly sclerotic economy, its zombie banks, its deflation and slow economic growth. This malaise has even been called “Japan syndrome,” sounding like a disease to warn policymakers, as in “you don’t want to end up like Japan.”
No one has been more influential in defining this narrative than New York Times columnist and Nobel Prize-winning economist Paul Krugman. Throughout the 1990s, and still occasionally today, Krugman has skewered Japan’s economy and leaders. In the late 1990s, Krugman wrote a series of gloom-and-doom articles, complete with equations, theories and titles like “Japan’s Trap” and “Setting Sun,” bluntly stating: “The state of Japan is a scandal, an outrage, a reproach. It is operating far below its productive capacity, simply because its consumers and investors do not spend enough.”
Krugman was commenting on Japan’s so-called “lost decade” of the 1990s, when the Japanese economy was considered sluggish and underperforming. But let’s look at some of the Japanese metrics during that time. Throughout the 1990s the Japanese unemployment rate was—ready for this?—about 3 percent. Not 30, that is 3. About half the U.S. unemployment rate at the time. During that allegedly “lost decade,” the Japanese also had universal healthcare, less inequality, the highest life expectancy, and low rates of infant mortality, crime, and incarceration. Americans should be so lucky as to experience a Japanese-style lost decade.
Reopening the case of Japan raises some important questions. How do economists such as Krugman decide what to value and prioritize, or what to measure? What is an economy for? To produce the prosperity, security, and services that people need? Or to satisfy economists and their equations, theories, and models? For too many economic Cassandras, if their spreadsheet columns do not add up, if the surplus nations do not balance the deficit nations and the supply does not meet the demand, then disaster surely awaits.